* Top arms importer forecast to spend $250 bln in next
* Tata, Larsen & Toubro, Mahindra increase investments
* Some sceptical on implementation after delays,
By Tommy Wilkes
NEW DELHI, Aug 21 Some of India's biggest
companies are pouring billions of dollars into manufacturing
guns, ships and tanks for the country's military, buoyed by the
new government's commitment to upgrade its armed forces using
India, the world's largest arms importer, will spend $250
billion in the next decade on kit, analysts estimate, to upgrade
its Soviet-era military and narrow the gap with China, which
spends $120 billion a year on defence.
Under the last government, procurement delays and a spate of
operational accidents - especially dogging the navy - raised
uncomfortable questions over whether India's armed forces are
capable of defending its sea lanes and borders.
Even before his landslide election victory in May, Prime
Minister Narendra Modi promised to assert India's military
prowess and meet the security challenge posed by a rising China
and long-running tensions with Pakistan.
Within weeks of becoming prime minister, he boosted defence
spending by 12 percent to around $37 billion for the current
fiscal year and approved plans to allow more foreign investment
into local industry to jump-start production.
Launching a new, Indian-built naval destroyer last week,
Modi said: "My government has taken important steps in improving
indigenous defence technology ... We can guarantee peace if our
military is modernised."
This build-up comes as Southeast Asian nations expand their
own defence industries, spurred by tensions with China. India,
reliant on a state defence industry that often delivers late and
over budget, risks being caught flat-footed.
"The opportunity is huge," said M.V. Kotwal, president
(Heavy Engineering) at Larsen and Toubro Ltd, one of
India's biggest industrial houses.
"We really expect quicker implementation. There are signs
that this government is very keen to grow indigenisation," added
Kotwal, referring to increasing domestic production.
Tata Sons, a $100 billion conglomerate, said last
month it will invest $35 billion in the next three years to
expand into new areas with a focus on a handful of sectors
Larsen is putting $400 million into a yard to build ships
for the navy, while Mumbai-based Mahindra Group is expanding a
facility that makes parts for planes, including for the air
force, and investing in armoured vehicle and radar production.
The companies are being lured by the prospect of lucrative
returns on their investments as the Modi government has pledged
to make "buy Indian" the default option for future orders.
Larsen is targeting a fourfold increase in annual defence
revenue to $1 billion within the next five years.
Critics of indigenisation argue that producing gear -
especially in the lumbering state sector - is more costly than
buying from abroad. Such deals can add layers of bureaucracy,
increasing risks of corrupt dealings.
Indian industry is renowned for its ability to adapt, yet
questions remain whether the private sector can come up with the
solutions needed to bring armed forces into the 21st century
without sufficient access to world-class foreign technology.
Some companies are also sceptical of the government's
commitment to grow the private market given New Delhi's history
of delays and order cancellations, and the traditionally strong
ties between the military and state-run manufacturers.
They cite the case of a $10 billion Future Infantry Combat
Vehicle (FICV) programme. Conceived in 2009, the defence
ministry invited three private players and the Ordnance Factory
Board, a state entity, to bid for the 2,600-vehicle contract but
suddenly withdrew the letter of intent in 2012.
Bidders included Mahindra and Tata, which is developing a
vehicle along with Lockheed Martin Corp and General
Dynamics Corp that could compete for a future contract,
said Rahul Gajare, an analyst at Edelweiss Securities.
A quick decision to relaunch the programme would demonstrate
Modi's resolve, said S.P. Shukla, who heads Mahindra's defence
business. Past tenders have stalled amid wrangling over whether
or not to allow state manufacturers to bid and under what terms.
Larsen's Kotwal said its Kattupalli shipyard in south India
has yet to receive any orders for warships or submarines despite
being designed to do just that and despite past government
pledges to build at least two submarines in private yards.
In the meantime, the yard has switched to constructing and
repairing commercial vessels.
"The policy in India has been right since 2006. The problem
has been implementation," said Rahul Chaudhry, CEO at Tata Power
SED, which makes rocket launchers, sensors and radars.
Local firms have captured a fraction of the Indian defence
market since it first opened to private participation in 2001.
Consecutive governments have handed orders to state factories or
to foreign giants like Boeing, Lockheed and BAE Systems
Gajare at Edelweiss estimates total India private sector
revenues from defence, including overseas orders, at below $2
billion last year, less than 6 percent of the country's defence
(Reporting by Tommy Wilkes; Editing by Douglas Busvine and Matt